INDIAN RAILWAY BUDGET REVIEW February 26,2015

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2 Railway Budget (Highlights) Investment May Get A Booster India s railway minister Mr. Suresh Prabhu has presented his maiden railway budget on 26th February 2015.Railway budget has clearly emphasis on securing financial resources from multiple agencies for expedite completion of exiting projects rather than announcing big bang projects which could have derailed the existing strategic non-completion projects for the railways. Budget document indicates that government would expand an annual freight carrying capacity from 1 billion to 1.5 billion tones, allocate INR 8500 Bn over a period of 5 years for placing of orders for more rolling stock, invest in Network Decongestion & Network Expansion and invest in safety infrastructure. Currently railways earns roughly 62% of its revenues from transporting of coal, iron ore, cement and urea products and the ministry perspicaciously hiked the freight rate of these goods by 1-10% to cover the cross -subsidy of passenger services worth INR 240 Bn.The budget document also indicates fast tracking of last mile connectivity projects of 7000 kms, expedite awarding of 750 km of civil contracts and 1300 km of system contracts on DFC and complete revamping of station re-development policy. While all these measures sounds good but present railway budget lacks specific on railway infrastructure projects. Nonetheless, government has made inroads to crowd in investment from long-term institutional investors and other partners. Financial Performance: Railway has reported gross revenue of INR 1601 Billion, while expenditure is INR 1469 Billion indicating an operating ratio of 91.8%. Plan Outlay is INR 1000 Bn, an increase of 52% over RE and gross budgetary support of INR 400 Bn.It is anticipated that the Plan size will get higher once resources from institutional bodies are formalized during the course of the ensuing financial year. Railways Investment plan: The government is envisaging an investment outlay of INR 8500 Bn for a period of 5 years to transform the Railways. This includes the placing of orders for more rolling stock (Locomotives, coaches, wagons production & maintenance), invest in Network Decongestion & Network Expansion (including DFC, Electrification, Doubling including electrification and traffic facilities) and invest in safety infrastructure (Track renewal, bridge works, ROB, RUB and Signalling & Telecom).The railway minister has outlined the mode of financing of these projects as the railway will partner with PSUs and tie ups with multilateral and bi-lateral organizations & other governments to gain access to long term financing. Traffic growth estimates: Railway will increase its daily passenger carrying capacity from 21million to 30 million whereas track length would be expanded by 20% from 1,14,000 km to 1,38,000 km.railway also envisage an annual freight carrying capacity from 1 billion to 1.5 billion tones. Moreover, railways hiked the freight rates by 0.8% for iron & steel; 2.7% for cement, 10% for urea, 6.3% for coal. Resource generation: Railways will create new vehicles to crowd in investment from long-term institutional investors and other partners. These may include setting up an infrastructure fund, a holding company and a JV with an existing NBFC of a PSU with IRFC, for raising long term debt from domestic as well as overseas sources, including multilateral and bilateral financial institutions.

3 Major Policy Initiatives & Its Impact MAJOR INITIATIVES IMPACT Railway all set to award 750 km of civil contracts and 1300 km of system This is a welcome move by the government as it will bring investments contracts on DFC (dedicated freight corridor) in into the sector. Government has already finished prequalification bid for eastern DFCs.Positive for L&T,Siemens. Railways to fast tracked last mile connectivity projects 7,000 kms with It will be positive for the sector. Positive for L&T,Siemens,ABB, Titagarh an investment of INR 87 Bn. Wagons, Texmaco, Kalindee Rail Nirman (Engineers) The railway ministry is all set to revamp station re-development policy This policy decision will open a window of opportunity for EPC players by inviting open bids from interested parties. such as L&T, Simplex Infra,Jkumar Infra. The railway ministry has allocated INR Bn for 970 numbers of ROB/RUBs and other safety-related works to eliminate 3438 level It will be positive for the sector. Positive for Siemens, Kernex Micro. crossings. Railway ministry sanctioned 77 projects covering 9400 km of It will be positive for the sector. Positive for L&T,Siemens,ABB, Titagarh doubling/tripling/quadrupling works along with their electrification at a Wagons, Texmaco, Kalindee Rail Nirman (Engineers),BEML. total cost of INR 961 bn. Railway will review the Private Freight Terminal (PFT) Schemes and This policy decision will lead to easier freight norms. Positive for will make it more liberal, broad-based and attractive to our partners CONCOR,Gateway Distriparks. from the private sector. Railway will investment in special wagons that are lighter. It is positive for core wagon manufacturer. Positive for Kalindee Rail Nirman (Engineers), Titagarh Wagons, Texmaco. 3 Source: Railway budget document, Microsec Research

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